Intuit Blackout Shows Challenges of Online Makeover

July 9 (Bloomberg) -- When a power failure knocked out
Intuit Inc.’s servers last month, the outage did more than
strand 300,000 customers. It showed the challenges in shifting
from selling shrink-wrapped software to Internet-based services.

Under Chief Executive Officer Brad Smith, Intuit is aiming
to get more than 75 percent of sales from Web-based services and
software by 2015. To do that, he plans to continue a run of
Internet acquisitions. Smith’s also developing new features and
investing in operations to prove that Intuit, best known for its
TurboTax and Quicken, can run a reliable online service.

“We don’t have the luxury of going down,” Smith, 46, said
from Intuit’s headquarters in Mountain View, California. “We
are required to be available 24/7, and we’re doing everything we
can to make sure it doesn’t happen again.”

Smith, working with Intuit’s chief technology officer and
chief information officer, is analyzing what went wrong in June
and working out procedures to avoid future outages. The company
also is making its data centers more efficient, in part by
shutting down smaller offices and concentrating more of its
operations in a state-of-the-art, 240,000-square-foot facility
that it built in Quincy, Washington.

Intuit now gets 60 percent of its revenue from online
products, up from less than half before Smith took over in 2008.
That’s come at a price: During the past three years, the company
has spent about $300 million on equipment and networking costs,
primarily for the new data center.

What to Avoid

Before becoming CEO, Smith had worked at Intuit for five
years, running several business units. To prepare for the top
job, he spent three months talking to analysts, employees and
board members about untapped opportunities. He also learned what
he should avoid.

The upshot: “We wanted to expand into new regions and new
markets,” Smith said. “And we wanted to transform ourselves
from a desktop company into one that connects to the Internet.
That’s been our strategy since January 2008, and it’s informed
all of the acquisitions we’ve made.”

Stock Gains

Intuit’s shares have advanced 33 percent in the past year,
with investors betting that the company will enter a new phase
of growth. The stock rose 36 cents to $36.28 at 4 p.m. New York
time in Nasdaq Stock Market trading.

Sales and profit have rebounded from the recession in the
past two quarters, helped by the online expansion. Revenue for
the fiscal year ending July 31 will be at least $3.4 billion,
Intuit said in May.

“They’re expanding and evolving,” said Gil Luria, an
analyst with Wedbush Securities Inc., who has recommended buying
Intuit shares for the past year. “Their current business is
growing nicely, but they want to ensure many more years of rapid
growth, and they are looking for large opportunities to do just
that.”

Intuit made its highest-profile bet with last year’s $170
million purchase of Mint.com, an advertiser-supported service
that pulls in data from consumers’ accounts, analyzes spending
habits and creates graphics that show how much they’ve spent on
everything from groceries to entertainment.

The service also lets users set up alerts so they can be
notified when their spending in any category climbs above preset
limits. Mint serves 3.3 million users, including Dena Stern, 26,
a San Francisco-based freelancer who works for nonprofits.

Saving Money

“They have really great tips on how to save money,” Stern
said. “Now I’m packing my lunch, eating healthier and saving
hundreds of dollars a month just doing that.”

That’s the kind of praise Smith is counting on to help
build out Intuit’s services. The company plans to add some of
Mint’s features to other programs, eventually giving users of
Quicken Online the same investment advice Mint subscribers get.

Even as it becomes more enmeshed in the Web, Intuit isn’t
abandoning the mission on which it was founded: finding complex
financial tasks that bedevil consumers and small-business
owners, and simplifying them.

Intuit introduced Quicken in 1983. With it, people had an
easy way to balance their checkbooks and track spending. Next
came QuickBooks, bookkeeping software for companies with fewer
than 20 employees. It acquired TurboTax in 1993. This year, 21
million taxpayers prepared and filed their returns with the
software.

PayCycle, Medfusion

In addition to Mint, Intuit has bought Web-based payroll
service PayCycle and Internet portal Medfusion, used by
physicians’ offices to schedule appointments and accept patient
payments. Those deals came after the 2008 purchase of Electronic
Clearing House, an online service that lets merchants process
check and credit-card payments.

Intuit is making some of its biggest bets in the health-care market, focusing on offices with 10 or fewer doctors. It
already offers a Web service that let consumers track and manage
health-care expenses. The Medfusion acquisition gives patients a
quick way to pay their medical bills.

Smith declined to say how much of Intuit’s $1.93 billion in
cash and short-term investments he plans to spend on
acquisitions.

“We’re diversifying -- constantly looking for things we
can bring to our customers,” said Grieg Coppe, head of Intuit’s
acquisition efforts.

Online Challenges

Managing customers’ online programs, data and transactions
has its set of challenges, as Intuit learned last month. That’s
when the computers running Intuit’s Internet services sputtered
because of a power failure triggered during routine maintenance.

Now he needs to reassure Intuit’s millions of customers
they can rely on the company, said Sasa Zorovic, a Boston-based
analyst with Janney Montgomery Scott LLC.

“The challenge of convincing people to entrust their work
and their data online isn’t a slam dunk,” Zorovic said. “Small
businesses, especially, have concerns about how safe their data
is.”

In the weeks since the outage, Smith said he’s reached out
to customers, asking them how Intuit could ease their concerns.
Some asked for a few months of free service, while others wanted
assurances it won’t happen again. Smith declined to say how much
Intuit has spent to beef up its systems.

“The cost wasn’t material to us,” said Smith. “But it
was to our customers. We are working to earn their trust.”